Making a statement

UK Chancellor George Osborne's Autumn Statement, delivered on Wednesday, was a gloomy affair.  Growth has fallen well short of earlier projections:  real GDP is now expected to contract by 0.1% this year.  Fiscal targets are not being met, and the Chancellor now expects the wave of austerity he has unleashed to continue until 2018.  Yet he felt able to assert that "Britain is on the right track".  If the current mess is Osborne's idea of success,  one can only cringe at the thought of what failure would look like.

Osborne's policy response to the situation is almost comically right wing.  Cuts in welfare spending, achieved by capping the normal annual adjustments for inflation.  Lower corporation taxes.  Further cuts in central government spending in order to finance infrastructure spending, which will mostly be carried out by the private sector.  Revival of the discredited Private Finance Initiative under a new name, PF2.  And the usual craven obeisance to middle-class unrest with yet another postponement of a planned rise in motor fuel taxes. Overall, though, it's more of the same: contractionary fiscal policy settings aimed at reviving growth, in defiance of all economic logic.

Osborne's "independent" forecaster, the Office for Budget Responsibility, has given him cover for this by stating that the economy's underperformance is not the government's fault.  It's all down to those pesky foreigners, especially the Europeans.  And it's true that the UK's trade sector has been harmed by the absence of growth in key European markets.  But I'm certainly not the first person to point out that fiscal policy (and monetary policy too) need to react to evolving circumstances, not carry on blindly as if nothing has changed.  Moreover, the lesson that could have been learned from the bounce in GDP in Q3 -- that judicious one-time spending (if I can call the Olympics that) can bolster growth -- has been entirely set aside.

There's a thoughtful analysis of the Statement, by Stephanie Flanders, here.  She, and others, are speculating that the bond rating agencies will see the further delay in setting the national debt on a downward path as justification for removing the UK's AAA credit rating.  Alas,  there's no reason to suppose that a slap on the wrist by them would pierce Osborne's cloak of self-belief.